Govt eyes counter-trade deals with 3 nations09 March 2001 (Business Times) - The Government is looking at enteringinto billion-ringgit deals with US, China and India to pay for locomotivesand rail dual-tracking contracts in palm oil.

"With such arrangements, we can lock in a portion of the Malaysian palmoil exports in the coming years and help firm up prices," Deputy PrimaryIndustries Minister Datuk Anifah Aman said yesterday.

Counter-trade negotiations involving other goods are on-going with the US,while an agreement is expected to be sealed with China soon.

On the same basis, the Government is inviting negotiations for contractsto dual-track the country's railway lines with companies in India andChina, Anifah told reporters after opening a seminar on palm and lauricoils price outlook in Kuala Lumpur.

He said counter-trade arrangements are part of the Government's efforts toarrest the decline of palm oil prices.

Other measures include getting power plants to use crude palm oil (CPO)instead of diesel to generate electricity.

This move alone can potentially take away 500,000 tonnes of CPO a yearfrom the market which has been plagued by over-supply.

CPO production for this year is projected at 11 million tonnes.

The stock level in Malaysia stood at 1.41 million tonnes at the end oflast year.

Anifah noted that CPO prices have fallen by about RM1,800 a tonne or 72per cent from their peak in 1998.

World demand for oils and fats has grown over the past two years, but sohas supply, in fact much faster.

This can contributed to a slump in prices to between RM700 and RM800 atonne now.

"As production in Malaysia is expected to exceed 11 million tonnes in 2001and with production in other producing countries rising as well, we canexpect prices to remain subdued," Anifah said.

On CPO futures, Anifah said the market has performed well in terms ofliquidity in the last few months.

"While the market recorded a daily average turnover of 1,278 lots in 2000,it is interesting to note that activity picked up quite significantlytowards the end of the year, and this has carried over into 2001.

"Daily turnover in the last quarter of 2000 averaged 1,500 lots, and forFebruary this year it surged to 2,000 lots, or more than 50,000 tonnes.

With the increased activity, open interest has also grown.

Open positions nearly tripled to 12,533 lots on February 14 from 4,577lots in December 1998.

"This is certainly very encouraging and we can now look at building up themarket further to match other international markets," he said.

CPO futures were the first futures contract offered in Malaysia andremains the only successful commodity futures contract on the Commodityand Monetary Exchange and in the Association of South-East Asian Nations.